An upbeat planning minister on Tuesday (February 8) informed the public that the economy was more robust than before as the country's gross domestic product (GDP) has registered a growth rate of 6.94 per in FY 21. He further noted that the economy's performance has been better than expected seeing that the government's provisional estimate of the GDP growth made earlier was only at 5.43 per cent. This also means that the country's gross national income per capita has increased from USD2,326 in FY 20 to USD2,591 in FY21.
If GDP is to be considered the real indicator of the country's overall economic health, then the development is something to write home about. But what do such dry mathematical figures actually say about the economy? How is it calculated? Can the common people also reap the rewards of the said success on the economic front? Such questions arise because such growth stories often fail to match the real situation on the ground.
Considering the economic hardship the common people have been experiencing especially amid the pandemic, the gain flies in the face of all such claims of economic growth. Reeling from the impact of runway price inflation of essential commodities coupled with increasing rate of unemployment as well as job loss among the low-income bracket of the population, GDP growth report will definitely not be music to their ears. In that case, one needs to delve deeper into the issue of GDP growth and why common people cannot share its positive outcomes in their day-to-day lives.
In this context, taking a short detour into the history of the idea of economic growth might prove to be helpful. Actually, the concept of economic growth caught the imagination of the classical when the market economy gained momentum during the Industrial Revolution. Especially, it was the brainchild of the Russian-American development economist, Simon Kuznets, who won Nobel Prize in economics in 1971. He popularised the concept of GDP and national statistics in the 1930s. He used the GDP indicator as a measure of America's national income. Even so, the introducer of the concept of GDP himself did not consider it a foolproof indicator of national income as the calculation lacked precision and was based on some approximate, not exact, figures.
However, during the post-World War-II context, when the world's leading economies with the US in the lead were looking for ways to increase tax to finance the war, they met at the Bretton Woods conference in 1944. And it is from that famous conference that the GDP got its currency as the standard to quantify an economy's performance, or growth, to be specific. So, since the idea of economic growth gained popularity during the early stages of Industrial Revolution when classical economy flourished, until its later stage when neo-classical economy emerged, the concepts of development and economic growth went hand in hand.
But what this development in terms of economic growth actually means? Frankly speaking, it is all about production of goods and services and accumulation of wealth thus created in a few hands, the hands of the capitalists. Obviously, it does not talk of how the economic output in the shape of growth is distributed among the population. Small wonder that when economies flourish, the rich get richer while the rest of the population continue to struggle as before.
But the capitalist economy is happy with such growth with the belief that somehow a certain portion of the fruits of growth would trickle down to the common people. But the growth model and its related analytical tools sustained so much so that in the post-World War period, the concept was transferred to the post-colonial economies marked with the tags of developing or least developed ones. One may recall at this point that the 33rd US president Harry S Truman during his inaugural address in 1949 termed the rest of the global south as underdeveloped. So it was the responsibility of the West under US leadership to bring the 'development' to global south through enlightening it with democracy. Hence this universal adoption of this simplistic, one-dimensional yardstick of GDP to measure economic development or growth!
But is it possible to know the economic condition of a small trader or a poor land tiller or a low-paid employee of a private business from the sum total of the value of the goods and services produced in an economy at a certain point of time? Most importantly, when there is a condition of rising inflation in the economy, the calculation of the values of the goods and services produced (in the economy) are done on the basis of their current prices. As a consequence, the calculation provides the analysts with an inflated measure of the economy's real worth. So, one should not be surprised to see that GDP and the real economy are sometimes at cross purposes. That apart, as the distributive aspect of the growth remains unattended under this system, people's share in the economic growth fails to be taken into consideration by the development analysts.